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European Stocks Drop, Ending Nine-Day Rally; BNP Paribas Falls

European stocks drop; BNP Paribas falls
BNP Paribas SA slid 2.7 percent. Photographer: Jock Fistick/Bloomberg

European stocks fell on speculation the Stoxx Europe 600 Index’s longest rally in 11 months has outpaced prospects for company earnings and economic growth.

BNP Paribas SA slid 1.6 percent as Fitch Ratings cut the credit rating for France’s largest bank. Aegon NV slipped 2.8 percent after saying it may consider selling its life reinsurance unit as it seeks to boost earnings. Chemring Group Plc sank 6 percent after profit declined.

The Stoxx 600 retreated 0.5 percent to 256.92, ending a nine-day surge that extended the advance from this year’s low on May 25 to 11 percent. The measure is still 5.6 percent below the April 15 high amid concern economic growth will be hampered as European nations try to cut their budget deficits.

“The markets remain nervous about the risks to growth and the wildly optimistic earnings expectations in some sectors,” said Chirin Gill, a London-based fund manager at Daiwa SB Investments, which oversees $60 billion.

National benchmark indexes declined in all of the 18 western European markets, except Iceland. France’s CAC 40 dropped 0.8 percent and Germany’s DAX slipped 0.4 percent.

The U.K.’s FTSE 100 fell 1 percent as Chancellor of the Exchequer George Osborne unveiled a levy on banks and an increase in sales tax in an emergency budget that seeks to guard the top credit rating without strangling economic recovery.

U.K. Budget

Forecasting growth of 1.2 percent this year and 2.3 percent in 2011, Osborne said he will tax bank balance sheets starting next year to generate 2 billion pounds ($2.9 billion) of annual revenue. The value-added tax rate will rise to 20 percent in January from 17.5 percent.

European stocks extended declines after a report showed sales of U.S. previously owned homes unexpectedly fell in May, a sign demand was probably pulled into prior months before a June tax-credit deadline. Purchases decreased 2.2 percent to a 5.66 million annual rate, according to figures from the National Association of Realtors.

BNP Paribas fell 1.9 percent to 49.36 euros. The bank had its credit rating cut by Fitch, which cited a “deterioration” of the company’s asset quality. The long-term rating was reduced one step to AA-, the fourth-highest investment grade, from AA, Fitch said late yesterday.

Societe Generale SA, France’s second-biggest bank by market value, fell 4 percent to 37.35 euros. Credit Agricole SA, the largest bank by branches, slid 4.7 percent to 9.49 euros.

Aegon, Chemring

Aegon dropped 2.8 percent to 4.96 euros. The Dutch owner of U.S. insurer Transamerica Corp. said it will explore strategic options for its life reinsurance business, including identifying a suitable buyer. The company plans to cut costs at its U.K. business by 25 percent by the end of 2011.

Chemring slumped 6 percent to 3,111 pence. The U.K. developer of missile-avoidance gear for the U.S.’s Joint Strike Fighter reported first-half net income fell to 18.4 million pounds from 21.5 million pounds.

Carnival Plc tumbled 5 percent to 2,424 pence, the biggest drop this month. The cruise ship operator said third-quarter earnings will be as low as $1.43 per share. Analysts on average forecast earnings of $1.51 per share, according to a survey by Bloomberg.

BP Slides

BP Plc dropped 4.4 percent to 334.2 pence, the lowest close in six years after adjusting for dividends, on concern the company’s oil spill cleanup operation in the Gulf of Mexico may be disrupted by bad weather. The first storm of the Atlantic hurricane season may enter the Gulf of Mexico as soon as next week, meteorologist Jim Rouiller said, and forecasters are predicting the season may be among the worst on record.

U.K. homebuilders rallied after the U.K. budget raised the capital gains tax rate by less than analysts and investors had anticipated. Barratt Developments Plc climbed 4.4 percent to 108.4 pence. Redrow Plc gained 3.2 percent to 127 pence.

Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc reversed earlier losses, rising 0.7 percent to 47.08 pence and 4.1 percent to 59 pence, respectively, after Osborne announced a levy on U.K. banks in the budget.

“We recommend being long of Lloyds in particular now that the levy appears to be less onerous than the bear case expectation,” analyst Andrew Lim at Matrix Corporate Capital LLP in London wrote in an e-mail to clients today.

Whitbread Plc gained 3.6 percent to 1,531 pence. The U.K. operator of the Costa Coffee chain said fiscal first-quarter sales at outlets open at least a year rose 7.6 percent, led by its Premier Inn budget-hotel chain.

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